Cases in Business Ethics

Fraudulent Reporting: A Case in Accounting Ethics

After majoring in accounting at Santa Clara University, Scott was hired as an associate auditor for a Bay Area accounting firm. He is currently auditing a local company's financial statements, a project he's been working on for about two months. The senior associate responsible for tracking billable hours has been pressuring Scott and other associates to report fewer hours than they actually worked. The senior associate would appear more successful if his team reported fewer hours, and the firm would also be better positioned to win similar contracts in the future. Scott is salaried, so billable hours don't affect his compensation directly. However, he knows that underreporting billable hours is against company policy.

In accounting firms, offering low billable hours is attractive to potential customers, as the bid with the lowest overall cost will get the business. At the start of any bid, the client agrees to pay a fee for the company's services, including all staff time. If the employees report fewer hours, the company looks more attractive and will more likely get the contract.

Pressure to report fewer billable hours comes from the "utilization metric" used to determine how efficiently an employee is working. Employees who report fewer hours than their peers will be seen as more efficient, due to a higher utilization rate. Scott remembers a case where one of his colleagues was promoted, partially because of his extremely high utilization rate. He knows that if he were to clock all of his actual hours worked, he would be at a disadvantage for the year-end performance review.

If Scott decides to clock all his billable hours per company policy, he risks losing the competitive edge with his colleagues, nearly all of which participate in under billing. Scott is uncomfortable with the practice, but fears his options are limited.